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FSI Blast

FSI Blast

The question of how much ‘bad news’ financial markets can absorb will be seen in the next few weeks.  The March employment report is out this Friday (although survey period was earlier in March before strict measures in place) and then we move onto earnings season. The COVID crisis is unfolding on two fronts, the leading edge of this cycle is a healthcare crisis and behind that, the economic aftershocks follow.  With each day, there is incremental Healthcare progress and of course, the key is seeing the epicenter peak, which is NYC. POINT #1: NYC showing steady case growth (linear not exponential), linear > exponentialThe latest update (3/31/2020) for NYC was posted this evening and the daily new cases is flattening, which is a good thing and potentially suggests the spoke on 3/30 (we wrote about yesterday) might be the anomaly.  Even Queens, which saw 2,019 new cases yesterday is 50% lower and frankly, the 1,000 per day for Queens seems more like the trend.  – This is virus and virology, so it is better for us to simply observe that New York City is still seeing a high number of cases, but it does seem like it is no longer growing exponentially. And Manhattan, has been steady for 3 days at between 350-500 cases per day (below) and this is still well below the peak of 709 daily cases seen 3/22/2020. And many continue to ask for data on NYC hospital admissions.  This is steady as well.  With new admittances of 808 on 3/31/2020 and below the 1,248 on 3/28/2020. POINT #2: Statewide, daily cases rising but more states see daily case growth slowing 2X every 3 days –> 2X every 7 daysTotal cases in the US rose to 24,240 (COVIDtracking project data) and reflects pretty sizable jumps in states like Louisiana (+1,212 vs +485 yesterday), Illinois (+937 vs +461) and New York State (+9,298 vs +6,984). – The outbreaks are localized, so each region has to see its own cases count slow.  And hopefully, other states outperform NY. More states seeing case growth rate slow to doubling every two weeks vs doubling every 7 days…Looking at the distribution of growth in cases by state trends, there are more states seeing daily case growth slow. – There are now 11 stats with a daily CAGR of 5% (doubles every two weeks or less), vs 3 on 3/28/2020. – But the bulk of the states are still seeing rapid case growth at 10% CAGR or doubling every week.  This figure is 30 states and same level it was 4 days ago. – There are simply fewer states reporting daily CAGR >10% (doubling every 3-4 days) as that figure was 13 on 3/29/2020 and now it is down to 8 or so. One could also see that the growth rates of cases in California and Washington state have become linear.  This is a positive, particularly since the outbreak was pretty severe in King County, WA but has since become flatter in trajectory.  And California continues to brace for a massive surge in cases ala NY state.  But at 1,035 cases, this figure is well under the >9,000 daily reported by NY. POINT #3: INFORMATION AND SITUATIONAL AWARENESS IMPROVING FOR COVID-19 and FEVERS DOWN ACROSS USA…The incoming news continues to show promise on the Healthcare front. In fact, the normally dour Dr. Anthony Fauci even stated today “If you look now, we’re starting to see glimmers that that is actually having some dampening effect.”  Even situational awareness is improving.  Kinsa Health, which makes Smart Thermometers, collects data on 162,000 thermometers and it shows that temperatures are actually falling  across the US. In fact, perhaps staying at home is also decreasing the spread of other illnesses as well. This is also from their website and as you can see, the trend in illnesses is now falling below the typical trend.   If fewer people are getting fevers (due to social distance), does this also suggest fewer people are outright dying via avoided accidents? This might be one of those “unanticipated” upside surprises for this “social distancing” + “work from home” and that is people simply get less ill.  And potentially, fewer people die by other accidental means, because they are “social distancing” – According to CDC, the #3 cause of death in USA (after heart disease and cancer) is “unintentional injury” and is the leading cause of death for 1-44 year olds. – 2.8 million Americans die annually, and the #1 cause for 1-44 year olds is “accidents” which per CDC, can be reduced by  “wearing seat belts and not driving under the influence”This chart below is deaths by week of the year and was originally flagged by Siddharta Sanghi, a researcher, which showed that seasonal patterns of death in the US have dropped in 2020.  We reproduced using CDC data CDC data on morbidity below. We cannot say this data is 100% accurate because of potential reporting lags and in fact, Siddharta himself tweeted he believes there are reporting lags and thus deleted his original tweet.  But because the data from the thermometers show a similar pattern, we think this is worth watching. POINT #4: EVEN IF ONE IS IN THE CAMP THAT WE EVENTUALLY GO DOWN 50% TO 1,700, NOW IS TIME TO PICK STOCKS. To the cautious and skeptical, this means the financial markets will be roiled by a double whammy — first, the pandemic sweeps across America and second, the economic ripple effects will play out.  And as such, financial markets will, therefore, be stuck in a U-shaped or L-shaped period as the economic effects play out.  Time will tell if the crescendo seen on 3/23/2020 was ‘the bottom’ or an interim ‘bottom’ (ala October 2008).  But even if it is the latter case, October 2008 was a great time for stock pickers. – While the S&P 500 still declined 20% from October 27, 2008 to March 9, 2009, about 1 in 5 S&P 500 stocks rose. – And in a big way.  51 stocks gained 28% or more.  Think about that, the market was already picking winners and losers from October 24, 2008.  So even if one is structurally cautious, now is arguably the time to start picking winners and losers. POINT #5: Even if EPS is down 50% in 2020, it does not mean stocks have to fall 50%…A final point we want to make is regards to EPS and the connection to stock prices.  Many have posited that since EPS is expected to fall 50% or worse in 2Q2020 and possibly 3Q2020, that stocks need to fall 50% or more. True, earnings level determine levels of equity, but it is the “present value of EPS’ that determine stock prices, and not just the current period EPS.A 15X P/E means investors are buying 60 quarters of EPS (15 years) and not just 2Q2020 and 3Q2020…The best way to lay this out is the chart below.  If one is paying 15X for the S&P 500, the investor is buying 15 years of EPS, or 60 quarters. – Since 1900, EPS has grown at 7% annually, and if EPS grows at 7% through 2035, the sum of the 60 quarters is $4,890. – And if 2Q2020 and 3Q2020 are down 50% or even ZERO, does that mean the stream of future EPS is down by 50%? That is the key question is whether there is a level set off 3Q2020 EPS that has permanently reduced EPS levels.  We do not believe this is the case.  After all, the best US companies will be stronger after this.  And the ultimate driver of GDP is population growth plus productivity.  In fact, it is possible the US population growth rate likely to surge because of a baby boom…that follows this prolonged period of stay at home… Perhaps Hong Kong and its post-SARS 2003 experience tell us that life does recover to normal…We are all experiencing extraordinarily unusual life conditions.  Social distancing.  Work from home.  Invisible germs everywhere.  And this prolonged quarantine risks a permanent change in our culture. Asia has experience with pandemics, having SARS, MERS, Swine Flu, etc.  and many of my friends and some clients in that region shared their 2003 SARS experience.  SARS swept through Asia in 2003, hitting Hong Kong hard starting on March 11, 2003.  That is when the first case was reported there and a full outbreak was confirmed by Day 6 at the Prince of Wales Hospital. The outbreak lasted a total of 101 days, before the WHO removed HK from a SARS affected list on June 23, 2003.    That is also when the last new case was reported.101 days under HK SARS… but the HSI bottomed on Day 48 (April 17th)…The HSI index (relative to MSCI ACWI) is shown below.  And it is evident the first breakout of SARS on 3/11/2003 also marked the peak for the HSI market. – And stocks sank steadily until April 17th.  – That was the day the WHO removed the first country from the ‘SARS affected’ list, which was Vietnam. – HK still had another 56 days of quarantine, but the stocks had already bottomed.  – and by October 17, 2003, had recovered all the lost relative performance. And incidentally, we were told that post-SARS, the Hong Kong residents went crazy with joy and really enjoyed themselves. The point is that there is a post-COVID future.  And while it is tempting to see the Great Depression II coming, we believe one should realize that is not the only path. – There is a ton of progress on the Healthcare front – Stocks look like they made a structural low, if not real low, and thus, stock picking is relevant for buying winners vs losers and buying survivors. Heads up as well.  We are planning a call on Friday to discuss some of these scenarios.  On that call will be the entire team–Tom Block (policy), Brian Rauscher (Global Portfolio Strategist), Rob Sluymer (Technical Head) and myself.  Details will be forthcoming.

COVID-19 bad news / good news. MIXED NYC: Hospitalizations down. Queens + Brooklyn relapse, Manhattan improve. GOOD: Italy FTSE MIB outperform sync'd with cases. REMEMBER MARKET SYMMETRY

There most notable change in market character, since Tuesday of last week, is the ability to absorb bad news, without an instant “limit down” move. Today, the Dallas Fed (regional PMI) posted a -70, the worst ever reading (since 2000) and yet the S&P 500 managed to close near a recent high.  Many will dismiss the strength today, attributing it to the anticipation of the quarterly rebalance (pensions saw outperformance of bonds in 1Q, thus, will sell bonds buy stocks).  But this effect is not really any different than the mechanical effects of systematic de-leveraging.  Thus, if stocks recover and breach key technical levels up, these should be respected. On the COVID-19, there is a general and subtle shift in the news cadence and thus, reaction and feedback from our clients.  Notably, it seems that investors feel the White House has found its “game plan” and there continues to be rapid positive progress on the healthcare side.  With the availability of quick testing, a much clearer picture of outbreaks can be developed. But overall today, there is mostly good news but there are some setbacks. POINT #1: “TWO STEPS FORWARD, ONE STEP BACK”. HOSPITALIZATIONS DOWN.  NEW YORK CITY, QUEENS + BROOKLYN RELAPSE BUT MANHATTAN IMPROVING…Posting daily updates on a regional breakout has a natural drawback–data will be lumpy.  But the reason we do this is because we are trying to calibrate whether the spread is “exponential” (bad) or “linear” (better) or “improving” (VERY GOOD). With the latest update from NYC (link–>NYC. gov link here), we see a “two steps forward, one step back”.  Let’s start with the bad: BAD: Queens + Brooklyn see a surge in cases…The bad news is Queens and Brooklyn saw a surge in new cases today.  Queens reported 2,019 new positives and Brooklyn 1,284. Both are new highs but not exponential new highs.  – There is some reason to believe some communities in Brooklyn and Queens are not following “social distance” directives.  There is a pretty comprehensive WSJ article discussing this (link –> WSJ article from March 30) and how some religious communities could have inadvertently contributed to the spread.  – Anecdotally, we are aware of some large “underground weddings” taking place in the NYC area.  These are unfortunately going to contribute to the spread. GOOD: NYC Hospitalizations down to 331…Hospitalizations dropped on 3/30 as shown below.  After two days of >1,000 “gross hospitalizations,” the figure dropped to 331 today.  This is a pretty lumpy data set (see below) but it is still a positive.  Hospital capacity remains key. – and we are not confident saying hospitalizations are going to fall.  There is a 5-day lag of symptom vs virality and it could worsen.  But again, the key is linear vs exponential. GOOD: Manhattan seems to continue to improve — social distancing working…We have focused on Manhattan as the case study for improvement, partly because of the importance of Manhattan as the epicenter for the economic engine for New York City (please don’t roll your eyes if you are a Brooklyn fan).  In this sense, Manhattan continues to show relative linear growth in cases, not exponential. – the latest update (evening of 3/30) shows 478 new positive confirmed cases for COVID-19 in Manhattan.  Still, well below the 709 seen on 3/22/2020.  This is a good thing.  – Recall, epidemiologists were calling for a doubling of cases in Manhattan every 3-4 days.  Thus, from 3/22/2020, the daily new cases should be at 3,000 per day now.  Instead, we are seeing 478. POINT #2: ITALY SHOWS THAT CASE PEAK = EQUITY MARKET BOTTOMItaly’s daily new cases have remained below the 6,557 reported on 3/21/2020.  The latest figure was 4,050 which is encouraging, 39% below the highs.  Given this peak was achieved 12 days after the strictest measures were taken, is a guidepost for how such measures will impact the US path. The FTSE MIB bottomed around the peak on “daily new cases”…The relative performance of the FTSE MIB is shown below (vs ACWI) and we used ETFs to make trading intervals comparable.  As shown below, the MIB bottomed on 3/17/2020.   – Think about that.  Italy’s case numbers have been horrifically high. – Yet, the Italian stock market began to outperform on 3/17/2020. Arguably, the stock market will “sniff out” peak cases before peak cases are reported. POINT #3: US COULD SEE PEAK CASES BY APRIL 6TH, 2020 (ITALY TEMPLATE) AND STOCKS COULD BOTTOM AHEAD…The outbreaks are localized.  Meaning, an outbreak in New Orleans is not constrained by the curve of New York City.  That said, every locality is watching NYC and learning.  And social distancing has been in place for some time. So, there is a possibility that the curves will be flatter in other areas. – If the US can match the outcome of Italy, this daily case peak could occur within the next week.  Granted, this is WAY EARLIER than official White House guidance (late April) and by the CDC.  – We are not making any forecasts.  But simply noting that Italy, China, and South Korea all saw measurable improvements by day 43-ish.  Day 43 equivalent for the US is April 6th. POINT #4: MARKET SYMMETRY.  RECOVERIES ARE NOT ‘L-SHAPED’ NOR ‘U-SHAPED’ OR ROUBINI ‘I-SHAPED’Based on our many conversations in the past few weeks, about half of our clients expect the S&P 500 to fall to 1,700.  Thus, many believe we are nowhere close to a bottom.  And if the outbreak worsens and extends in the Summer, perhaps that view is correct.  But we know some type of structural bottom took place last week.  The change in market tone is evident.  And Lowry’s registered a conventional buy signal following 3 80%-90% up days. SYMMETRY: The speed of decline determines the speed of the recovery. 50% of recovery takes 0.5X the time…We think investors are underestimating how quickly stocks will recover.  (We wrote about this a few weeks ago) and that history shows the speed of recovery is proportionate to the decline.  – This symmetry is key.  Half of the losses should be recovered within 0.5X of the time. We fell over 6 weeks, thus, a recovery to 2,800 should only take 3 weeks.  – And it seems like this symmetry is playing out. – The last 3 major declines of >30% are shown below.  And you see the symmetry. This suggests that full recovery, contingent on cases peaking in early April, could be seen by July 2020.  2.5X the time to new highs vs speed of decline. Yup… that is what history points to. Looking at the 10 declines since 1920 of >30%, this symmetry still holds.  The median time to new highs is 2.5X the speed of the decline.  Basically, equities are like rubber bands. Brian Rauscher, Global Portfolio Strategist, believes a potential 2H2020 surprise is “new highs for S&P 500” – Incidentally, this is consistent with the view of Brian Rauscher, Fundstrat’s Global Portfolio Strategist, who believes markets could be surprised by new highs by 2H2020. Shown below, the implied date for a new high, contingent on an early April peak of US cases, is mid-2020.

COVID-19 UPDATE: Growth underperformance to Value is sharpest and fastest since 2006. COVID-19 daily cases nearing 200,000

Click HERE to access the FSInsight COVID-19 Daily Chartbook. STRATEGY: Growth underperformance since September is the largest since 2006Equities managed a positive close on Wednesday's trading, a good sign, particularly considering equity futures were down nearly 1% overnight.  I will always view a -1% overnight to a positive close as a win.  Talks of potential progress on a US stimulus package were helpful, but this also a reminder that we are in a favorable seasonal period and strong markets finish strong = December rally. We think one of the most important questions in 2021 is whether sufficient structural factors/changes have taken place in 2020 to justify a period where Epicenter (aka Cyclical stocks aka Value) can durably outperform Growth.  Take a look at the relative performance of Growth (Russell 1000) and Value since 2006.  The red line, Growth, has been pretty much straight up, except for a brief wobble in 2008 (July to Nov).  - But in the past 3 months, we have seen a 900bp underperformance (vs R1K index).- This is BOTH the fastest underperformance and the largest underperformance in 14 yearsAnd this bears quite a lot of importance in 2021. - Is this 900bp underperformance merely a minor counter-fractal in a larger horizon of Growth continued dominance?- Or are we seeing the start of a 14-year cycle of Value leadership? Source: Bloomberg Over the next few weeks, we will continue to come back to this key issue.  There have been many 'false dawns' of Value leadership, and we have certainly been guilty of expecting this turn to happen multiple times over the past few years.  So we are naturally less confident in trying to judge this too early.  But consider the following possible factors:- Post-pandemic shift to de-urbanization is also an asset heavy (buy houses, cars etc) shift --> Value leads- Pandemic drove cyclicals to re-engineering costs and processes --> operating leverage --> Value leads- Massive amount of monetary easing --> risk of inflation rising --> Value leads- Cyclicals have proven unkillable --> lower equity risk premia --> P/E go upSo you can see, there are some factors at play that argue for Value to outperform.  Perhaps this will only be early-cycle reason (12 months) but with a free call-option on this being a 10-year cycle. Growth vs Value is like the Hatfield vs McCoyIf investors decide to tilt towards Value (aka Epicenter aka Cyclicals), there is a pretty sizable market cap shortage.  We have written about how about 75% of the S&P 500 is Growth/Defensive and about 25% is Epicenter/Cyclical.  Thus, there is a 3:1 mismatch if investors make a sustained shift towards Cyclicals. And this difference is also evident when we look at the sector weighting differences in the Russell 1000 Growth and Russell 1000 Value index.  The left is Growth and the right is Value.- Technology and Healthcare is 52% of Growth versus 25% in Value- Energy/Materials are non-existent in Growth and 6% in Value- Financials are 2.6% in Growth and 15% in ValueYou get the picture.  For an investor to shift preferences from Growth to Value is like someone:- switching political parties- Hatfield vs McCoy- Los Angeles vs rural Midwest- In-n-out vs Shake Shack- NY-style pizza versus Chicago deep dish- Darth Vader vs Obiwan KenobiAfter all, Growth has worked for 14 years and it has made careers.  And the S&P 500 has flourished because of the addition of Growth companies, FANG, which did not even exist pre-1996.  So there is always going to be plenty of outperformance of reasonably priced growth companies. Source: Fundstrat and Russell InvestmentsEpicenter superior total return = EPS surprise+ P/E re-rate... double whammyWe think the upside for Epicenter stocks is coming from:- EPS surprise (re-opening + operating leverage)- P/E expansion (unkillable)So there is not necessarily a trade-off between E or P/E and also a reason we think the 2020 price highs are an 'artificial constraint' for Epicenter stocks. The drastic difference in sector weightings if Russell 1000 Manager decides to wear Value strips... But consider the potential massive inflows into epicenter equities.  We illustrate by looking at how much a Russell 1000 Index manager would need to increase holdings of each of the 11 major sectors (GICS 1).  Tireless Ken, our data scientist, did these calculations:- The biggest decline in holdings would be a 57% and 39% drop in Technology and Discretionary- 49% and 44% rise in Energy and Financials holdingsIs it any wonder that we have seen Energy and Financials surge in the past few weeks?  As we mentioned a few times, the rise in Epicenter stocks seems like baby steps if the above arguments are true. Source: Fundstrat and Russell InvestmentsAnecdotally, we are finding rising skepticism of the timeline for a US vaccine, which also means, rising skepticism of an economic re-opening.  There are many reasons for this:- Washington quagmire on stimulus- Wave 3 cases- Soft lockdowns = further weakness- Continued election challengesAnd as such, investors are hesitant to embrace the economy re-opening trade, aka Epicenter stocks.  In fact, this is the reason this tweet by Nate Silver rang true for me.  As he comments, he thinks people aren't optimistic enough Source: twitter. comThe good news is that former President Obama has publicly stated he is willing to take the COVID-19 vaccine.  And this surely will improve confidence to trust the vaccine -- recall, NY Gov Cuomo publicly expressed skepticism about this vaccine effort.  Moreover, many minority communities have been reluctant/skeptical of the vaccine. So this is a positive development. Source: CNBCWave 3 is still underway in the US.  And after a short respite, daily case trends are again worsening. CA even reported >20,000 cases, the highest figure for any state, on an absolute basis.  The interesting development in Wave 3, is that the earliest states at the heart of Wave 3, WI, IL, ID, ND, SD, UT, or WIINSU, are seeing daily cases rollover:- See the red line states?  Those are daily cases per 1mm for WIINSU, they are rolling over- the surge is now in Wave 1 and to a lesser extent, Wave 2 states Source: COVID-19 Tracking and Fundstrat    So for now, everyone needs to stay vigilant! ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter (*):Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click hereADDENDUM II : Did you miss our Webinar on Nov 19? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click here(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. POINT 1: Daily cases 192,879, +12,004 vs 7D ago... Holiday-related rollover endingThe latest COVID-19 daily cases came in at 192,879, + 12,004 vs 7D ago. - For a stretch of 5 days, daily cases were down vs 7D ago, but this has reversed- The drop in cases in the past week reflected, in part, holiday-related closures- And with social gatherings during Thanksgiving, we expect cases to start risingWe won't have a clearer picture of COVID-19 trends until after this payback period ends, which is in a few weeks.  This is not that different than the distortions seen after Labor Day weekend. Source: COVID-19 Tracking Project  and Fundstrat7D delta at +12,004, ending the 5 day stretch where cases were declining... Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average. - The 5 day stretch of falling cases ended- Ex-CA, daily cases are slightly better, but still rising Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and FundstratPOINT 2: Wave 3: Still waiting for a peak but early Wave 3 states rolling over... Wave 3 is still underway in the US.  And after a short respite, daily case trends are again worsening. CA even reported >20,000 cases, the highest figure for any state, on an absolute basis.  The interesting development in Wave 3, is that the earliest states at the heart of Wave 3, WI, IL, ID, ND, SD, UT, or WIINSU, are seeing daily cases rollover:- See the red line states?  Those are daily cases per 1mm for WIINSU, they are rolling over- the surge is now in Wave 1 and to a lesser extent, Wave 2 states Source: COVID-19 Tracking and Fundstrat   If the Wave 3 states are seeing a rollover in cases, albeit from astronomically high levels, this also gives us a template to see how the rest of the US fares.  The biggest surge in absolute cases is in CA.  The chart below is showing daily cases, on an absolute basis, and as you can see, CA is reporting a massively high number of cases. Source: COVID-19 Tracking and Fundstrat    POINT 3: For reasons not entirely clear, the Latino share of cases is rising againEarlier this year, we had written several commentaries noting Latino's surprisingly high share of COVID-19 cases.  As the chart below highlights, this peaked at nearly 47% by mid-June before tumbling.- however, as Wave 3 unfolds, it looks like the Latino share of cases is rising again Source: State agencies, CDC, COVID-19 Tracking Project and FundstratLatinos are 16% of the US population, thus, at 22% and rising, their share of COVID-19 cases is high and rising.  There have been many attempts to explain the relatively high share of Latino COVID-19 cases.  Some suggest it is:- occupational (essential workers), - economic (the type of housing and multi-generational)- health (more likely to have underlying conditions)- nutritional (Vitamin D deficiency)I am not entirely clear myself on the causes for this high share and rising.   is the current Latino share of COVID-19 cases, by state.  And even now, at the top of the list are states hit hard in Wave 1 (NY tristate) and Wave 2 (F-CAT):- 50% and 46% of CA and TX cases are Latino- Rhode Island and Connecticut, which are seeing a huge surge in cases, have 31% and 29% of cases Latino- The exceptions to this are states getting hit the hardest in Wave 3 (red states) which have a relatively lower share Source: State agencies, CDC, COVID-19 Tracking Project and Fundstrat

Weekend data suggest NYC indeed peaked last week and glimmers of positive state trends in COVID-19

Given the steep sell-off of equities on Friday, it was clear investors were bracing for another weekend of bad news and a Sunday night futures massacre (which has been the story for the past few weeks).  But the developments over the weekend were marginally positive, in our view.  We thought it was wise for the President and White House to extend the “stay at home” through April 30th. POINT #1: New York City daily new cases likely peaked on 3/25/2020…Among the incrementally positive data, it does indeed appear that New York City COVID-19 daily new cases have peaked.  This is something we flagged last week, and wondered aloud.  Given some of the changes of testing methodology, etc., there is bound to be some inconsistency, but the overall trend seems to be improving.   – Notice, the daily new cases reported for 3/29/2020 is 2,710 which is similar to the number of cases reported on 3/24/2020 (5 days earlier) and with 50% estimated greater tests conducted (the test data is NY statewide, not city). Even data by borough shows a similar trend.  That daily new cases across all boroughs seems to be coming down.  Queens remains the borough with greatest new cases but the recent figure of 906 is down 50% from where it was on 3/25/2020. POINT #2: The last few days does suggest New York State could also be seeing a “peaking” of cases soon…The epidemic exploded in New York City and almost half of all COVID-19 cases in the US are in the state of New York.  The daily new confirmed cases is shown below and as seen, it does seem like the exponential growth rate of new cases is slowing in NY state. – This is arguably too early to draw conclusion, but the daily new cases reported 3/29/2020 was actually ~500 less than the day prior.  – Tests administered on 3/29/2020 were 16,426 vs 10,151 the day prior.  POINT #3: Several states are showing consistent and consecutive improvements in case count…The epicenter of the US COVID-19 outbreak has been the state of New York and we are seeing new spread as New Yorkers flee to other states.  And while the majority of cases are New York, we highlight 9 states which have shown consistent improvements in case count. – Only 2 states have seen 3 consecutive days where the daily growth rate and the number of new cases has been falling.  Arkansas and Oklahoma. – Another 7 states have seen 2 consecutive days of both daily growth rates and daily new cases.  Wyoming, Arizona, Tennessee, Georgia, Idaho, Ohio and West Virginia. So each region/city will experience its own wave. We have grouped states by the daily growth rate of COVID-19 (see 5 categories below): – The plurality of states (31 states) have a daily growth rates between 10%-19%, which is a doubling sometime between 4-7 days.   – Notably, 8 states (and territories) have seen the growth rates slow to between 2%-9% daily growth (which is a doubling between 14 to 30 days).    BOTTOM LINE: New York City and New York state seeing linear, not exponential growth is positive, as it provides a template for other governors/states to prepare. We are stating the obvious when we observe a reduction of fear (both by population and by markets) around COVID-19 will be achieved by a combination of seeing regions contain local outbreaks (Italy seems like it is peaking and eyes are on NY and NYC) and by measurable improvements in treatment options.  On the margin, it does appear that New York City’s social distance measures are achieving the flattening of the case curve.  Of course, there are still ~2,500 new cases daily in New York City, but that is almost half of what it was on 3/25/2020.  Second waves of cases can take place, so we could not conclude that cases have peaked.  But it is fair to observe that case count appears linear not exponential. The weekend was not a tsunami of bad news, but rather, more of the same with some improvements…As for markets, the cadence of news is less terrifying compared to the last few weeks.  And last week, it was notable to see Tom DeMark observe that the bulk of the sell-off is done (but 2,097 is lingering out there for the S&P 500) and Lowry’s registered a conventional buy signal given the cluster of 80% and 90% up days. – We had many conversations with our clients last week.  And we see a broad buyer’s strike.  Nobody wants to buy stocks given the poor visibility.  This is understandable. – But realize that the sellers are no longer necessarily liquidating at the pace they did the past few weeks.  And if Lowry’s data is right, the market is shifting in favor of buyers. Last comment, Brian Rauscher, our global portfolio strategist also listed a new of 2H2020 surprises.  He is generally constructive medium to long-term and noted the possibility of new all-time highs later in 2020 (link –> Rauscher report).  This makes perfect sense to us, if the scenario of a 1-quarter but not 2-quarter disruption unfolds.  A 1-quarter scenario is more probable if New York State is indeed seeing an apex of cases.

COVID-19 UPDATE: Director of Supply for Operation Warp Speed says ubiquitous vaccine by mid-2021. If so, COVID-19 ends before then...

Click HERE to access the FSInsight COVID-19 Daily Chartbook. In our conversations and emails with clients over the past few days, it seems most are skeptical that equities can rally strongly in December.  To an extent, I understand this, given the near historic gains of November, particularly in epicenter stocks.  And at the same time, most see a case for stocks to do well in 2021, given the economic recovery. So it seems that investors see some sort of gap between stocks stalling in December, but doing well in 2021.  If this is consensus (it might be), then investors are not necessarily positioned for a YE rally.  As we noted yesterday, history suggests stocks should rally in December -- strong markets stay strong. STRATEGY: DeepMacro sees big November jobs report of +1.05mm, or double consensusPerhaps the most important economic data point this week is the November jobs report.  Consensus (per Bloomberg) is 575,000.  DeepMacro, the economic research firm that uses big data, sees 1.05 million payrolls.- this would be a HUGE beat and exceed the October gains of 906k- If DeepMacro is correct, the November jobs report would further fuel the December/Santa Claus rally. DeepMacro is basing its views on new job postings and the speed of filling these openings.  I have found their framework useful and they are often correct directionally.  So this is worth keeping in mind. As for COVID-19 cases, the rollover in daily cases seen in the last 5 days seems to be reversing -- in other words, we witnessed a short-term peak in Wave 3 but this respite is over.  To an extent, the pandemic is gaining strength, as Thanksgiving brought together families.  But the bigger factor in today's rise is the payback from last week.  During Thanksgiving week, closures and reporting lags made cases lower than actual. Source: COVID-19 Tracking Project  and FundstratThis is not necessarily a good thing.  And daily deaths reached 2,426 today, approaching the Wave 1 peak of 2,760 (see Point #2).  This is not surprising given daily cases are 4X wave 1's peak and hospitalizations are at a record.  The difference, however, is Wave 1 deaths were concentrated in NY tristate, where that region saw >30 daily deaths per 1mm.  Today, the various regions are seeing daily deaths of 5 per 1mm -- far lower in each geography, but more deaths in aggregate. Source: COVID-19 Tracking and Fundstrat    But the vaccine distribution is moving forward and the Head of Distribution and Supply for Operation Warp Speed,  Lt General Paul Ostrowski, said the widespread ubiquitous vaccine availability should be seen by mid-June 2021.  If this is correct, COVID-19 pandemic should be largely over before then = risk on. This is true even if many Americans refuse to be vaccinated.  ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter:Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click hereADDENDUM II : Did you miss our Webinar on Nov 19? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click here POINT 1: Daily cases 174,244, +11,997 vs 7D ago... Holiday-related rollover endingThe latest COVID-19 daily cases came in at 174,244, + 11,997 vs 7D ago. - For a stretch of 5 days, daily cases were down vs 7D ago, but this has reversed- The drop in cases in the past week reflected, in part, holiday-related closures- And with social gatherings during Thanksgiving, we expect cases to start risingThis looks like Tuesday's data is the start of this payback Source: COVID-19 Tracking Project  and Fundstrat7D delta at +11,997, ending the 5 day stretch where cases were declining... Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average. - The 5 day stretch of falling cases seem to be ending Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat              Source: COVID-19 Tracking and FundstratPOINT 2: Wave 3, Daily Deaths in total nearing new high... Daily deaths reached 2,426 which is nearing the Wave 1 peak of 2,760 set in early May 2020.   Daily cases are nearly 4X greater than the Wave 1 peak and hospitalizations are already at a new high.  So it is not entirely surprising to see daily deaths rising.  Source: COVID-19 Tracking and Fundstrat    And as we discussed a few weeks ago, the largest incremental share COVID-19 has been increasingly older Americans.  And older Americans have a greater risk of developing a more severe and deadly case of COVID-19.  The good news is that there are better treatment regimens now as well as more approved and seemingly effective treatments (Regeneron, Remdesivir, Olumiant, etc.). Source: CDC and FundstratThe deaths, in aggregate, are set to exceed Wave 1 highs (2,760) but the concentration regionally is much lower.  As shown on the chart below, looking at daily deaths per 1mm by tiers of states, we see the level of daily deaths per 1mm is far lower.- In Wave 1, NY tristate saw nearly 30 deaths per 1mm residents daily- today, most states are <5 daily deaths per 1mm Source: COVID-19 Tracking and Fundstrat   POINT 3: Director of Supply for Operation Warp Speed says ubiquitous vaccine by mid-2021.  If so, COVID-19 ends before then... The CDC advisory group formally announced that Healthcare workers and Nursing home residents would be prioritized to receive the first doses of the approved COVID-19 vaccine.  It was widely anticipated and reported that these two groups would be prioritized, so it is not a surprise necessarily.   Source: Washington PostBut I was somewhat surprised to see that of the 14 members of the panel, 1 dissented.  As the article notes, Helen Talbot, an associate professor at Vanderbilt was the dissent.  And it looks like she was against the idea of vaccinating long-term care residents.- question --> do you agree with this?- I am not sure I see the rationale behind a dissent Source: Washington PostAs for the broader public, it looks like the rest of the US will have ubiquitous access by June.  That statement was made by the director of Supply, Production for Operation Warp Speed - Lt General Paul Ostrowski.  I am using the article from the MIT Technology Review (see below).- June is half a year away, but this is not saying that all Americans need to wait by June- Rather, by June, there should be sufficient supplies for anyone to get vaccinatedIf this timeline proves to be correct, COVID-19 will be largely over by mid-2021. Source: MIT Technology Review

COVID-19 UPDATE: Wave 3 STILL rolling over, daily cases -9.404 vs 7D ago (5th consecutive day). History suggests a 100% probability of December gains

Click HERE to access the FSInsight COVID-19 Daily Chartbook. STRATEGY: Since 1945, December up 100% of the time, when S&P 500 up 10-15% YTDTuesday is the first trading day of the final month of 2020.  Our data science team, led by tireless Ken, compiled some statistics around the expected return for December.  In particular, I was curious how December returns were impacted by YTD gains (Jan 1st to Nov 30th):- S&P 500 up 12% YTD- When S&P 500 up 10%-15% YTD (n=13)- AND a bear market not underway (yes)- December up 100% of the time and avg gain 3.3% (~100 points)Unless a bear market starts next month, December looks like it will be a very strong finish for 2020.  And the table below generally confirms our view that strong markets finish strong.   Source: FundstratDespite sloppy trading on 11/30, VIX actually declines and approaching 20... While stocks were sharply lower on Monday (11/29), the VIX actually fell on Monday as shown below.  And at 20.57, the VIX is nearing the 20 level, which we view as critical.  As we mentioned a few weeks ago, a VIX <20 takes us to pre-pandemic levels. The benefit of a lower VIX is many funds VaR models (value at risk) would enable a higher level of leverage.   - sub-20 VIX could lead to additional institutional inflows into stocks- sub-20 VIX is thus a strong risk-on signal- could happen in December = further fuels December rally Source: BloombergCOVID-19, for the moment, seems to be rolling over as evidenced by the recent downturn in daily cases.  But we are conditionally hopeful because the holiday season leads to social gatherings and this could trigger a renewed wave in cases.  And this is our base case.  Even trends in hospitalizations have been encouraging.  The updated hospitalization coefficient is shown below -- this shows the number of incremental patients hospitalized compared to cumulative new cases.  - this figure is 0.8% and rolling over from ~1% a few weeks ago- In wave 1, this was ~13% and wave 2 ~3.5%- thus, the rate of incremental hospitalizations is far lower Source: COVID-19 Tracking Project and FundstratADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter:Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click hereADDENDUM II : Did you miss our Webinar on Nov 19? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click here POINT 1: Wave 3 STILL rolling over.  Daily cases 147,542, -9,404 vs 7D ago... CA+TX still seeing a massive surgeThe latest COVID-19 daily cases came in at 147,542, down -9,404 vs 7D ago.  Ex-CA, which is seeing a surge, daily cases would be down -15,101 vs 7D ago- Over the past 5 days, daily cases were lower vs 7D ago, in each of the past 5 days- It looks like Wave 3 is definitely rolling over Source: COVID-19 Tracking Project  and Fundstrat7D delta at -15,716 and cases are declining in each of the past 5 days (vs 7D ago)Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.  If we look ex-CA, which is seeing a massive surge, daily cases are falling even faster:- ex-CA, daily cases are down -15,101 vs 7D ago Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat    Source: COVID-19 Tracking and FundstratPOINT 2: Daily deaths barely rise in Wave 1 and Wave 2 states, as daily cases surgeDaily cases are rising across the US and I thought it would be helpful to look at case trends in the states hit during Wave 1 (NY tristate + MA + RI) and states hit in Wave 2 (FL, CA, AZ, TX, or F-CAT).  Anecdotally, on my social media feeds (FB, twitter, etc.) and even Whatsapp, I am seeing more people within Wave 1 and Wave 2 states make comments about knowing someone who caught COVID-19. Below, for instance, is a Whatsapp from my friend Brent C, who lives down in Monmouth Beach, NJ.  - His comment is something I am seeing more and more of- More people know someone who has caught COVID-19 Source: WhatsappWave 1: 4 of 5 states are seeing new highs in Daily Cases, only NY is notThe daily case trends (7D avg is the dashed line) for the states hit hardest in Wave 1 are shown below.  Of the 5 states, 4 of the 5 are seeing new highs. - The only state that has not seen a new high is NY states. Source: COVID-19 Tracking and Fundstrat Wave 2: 2 of 4 states are seeing new highs in Daily CasesOf the 4 states in Wave 2, FL, AZ, CA, TX, or F-CAT, CA and TX are seeing new highs in daily cases.  As shown below, the daily surge in cases is worst in CA and TX. Source: COVID-19 Tracking and Fundstrat Daily Deaths have hardly increased in Wave 1 and Wave 2 states... But the daily cases are hardly a complete picture. Similar to our generalized comments about lower hospitalizations and lower daily deaths for the US overall, we are seeing the same trends within Wave 1 and Wave 2 states:- Daily deaths have barely, barely increased in Wave 1 states (NY tristate)- And barely increasing in Wave 2 states Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   POINT 3: COVID-19 study of NJ hospitals shows patients with DNR account for ~60% of patients but ~90% of deaths Is Do not resuscitate, or DNR, the biggest factor in COVID-19 deaths... Regarding COVID-19 mortality, a study of NJ COVID-19 related deaths is quite eye opening.  I saw several comments on twitter over the weekend about this study.  The study, published in Clinics in Dermatology (CID journal), was posted on 11/28/2020.  - the comment from Dr. Zoe Harcombe @zoeharcomb made the most succinct point- 89% of NJ-related COVID-19 deaths were from patients with DNR, or Do Not Resuscitate orders- DNR patients were about 60% of COVID-19 admissions- DNR patients were a smaller share of co-morbidities, thus, should have had a higher survival rateI am somewhat puzzled by this.  Does this mean a patient was more likely to die from a DNR?  The reason I ask this is that patients requiring life saving measures are already going to have a high mortality rate -- meaning, the DNR should not be necessarily coming into play for hospitalized COVID-19 patients.  The natural question is whether they received a lower standard of care--maybe?  Source: Twitter. comThe study looked at a two-month period between March 15 and May 15, 2020.  So it is best described as looking at the early days of the pandemic. /article/S0738-081X(20)30231-5/fulltext>60% of NJ-patients had DNR requests, but they account for ~90% of deaths... About 60% of the patients had DNR requests as shown below.  As a side note, it looks like 90% of the patients were male.  So it seems to corroborate the comments that men are far more likely to be hospitalized compared to women. /article/S0738-081X(20)30231-5/fulltext /article/S0738-081X(20)30231-5/fulltextIronically, the DNR patients had far fewer co-morbidities... Below is a list of the co-morbidities and the share between DNR and non-DNR.  As the chart below shows, while DNR was about 60% admissions, their associated share of co-morbidities was lower. - thus, we would have expected a smaller death share for DNR- instead, DNR is about 50% more likely to die from COVID-19 /article/S0738-081X(20)30231-5/fulltextThe obvious question is whether hospitals used a lower standard of care for patients with DNR?

Is it possible that New York City is past "peak" COVID-19 cases? Data below... just asking ourselves this question

Our data science team has shifted their analytics to US COVID-19 statistics, and we will provide periodic updates as we get comfortable with our analytics.  And the New York Times just opened its Github repository, as well. We have been collecting data for New York City from these sources: comprehensive NYC only data has been provided only since March 18th. POINT #1: Manhattan (1 of 5 boroughs in New York City) looks like cases peaked on 3/22/2020. This is the daily new positive cases for COVID-19 in Manhattan (one of 5 boroughs). – The past two days have seen roughly the same daily new cases at 430 or so.   – This is down from 709 on 3/22/2020–that is 6 days agoNew York City went into full lockdown on 3/15/2020, or about 12 days ago.  Is social distancing working? – Even though we hear reports of people out and about, the case count has been remarkably FLAT.  Linear and not exponential. – We find it curious that Mayor DeBlasio has not been providing more comprehensive statistics on COVID-19 (NY Post Article “De Blasio won’t release key coronavirus stats despite promises of transparency”) POINT #2: New York City-wide seems to be following the same trend, that peak new cases as 3/22/2020. The combined data for the 5 boroughs is showing the same shape and arguably even faster improvements. – Daily new cases for 3/27/2020 was 2,461, down from 3,100 from the day before and down from 4,385 on 3/25/2020. – Testing has shifted to “on-site” but this is still a noticeable change. The 5 boroughs are each individually showing this trend. – Queens which was a hotbed has seen daily net new cases fall for each of the last 2 days and is now less than 50% below where it was 2 days ago. – Brooklyn similarly is down from its peak on 3/22/2020 – and Bronx and Staten Island similarly. POINT #3: What is the point of all this? Strict lockdown measures in place since 3/15/2020 and 12 days later, it seems to be workingStrick measures were put in place 3/15/2020, closing bars and restaurants and fitness centers.  And in the ensuing 12 days, this social distance measure seems to be working. – New York City has 4,721 residents EVER hospitalized for COVID-19 (discharged are not reducing this figure) – yesterday, 798 were admitted, down from 1,039 the day before. – The Mayor is asking for 30,000 ventilators BOTTOM LINE: But the linear and slowing progression of spread, as shown, would suggest the City does not need 30,000 ventilators.  This would imply 600,000 cases in NYC (5% need ventilators). It is possible that an explosion of new cases is waiting.  But this data bears watching. Italy and Lombardi never saw a linearization of the cases until recently.  So is this suggesting that New York City is through the worst? We don’t want to make that conjecture. Rather, we are highlighting that the case count in NYC is NOT FITTING THOSE EXPONENTIAL CURVES. THAT IS A BIG DEAL.  

Thinking About A Non-Apocalyptic Future – Ten 2H20 Surprises

The doomsayers are out there along with the scary headlines, especially after investors have already experienced the new bear market. It’s easy to shout that the situation must inevitably worsen, now that they’ve deteriorated so far and so quickly. However, in my view, investors appear overly pessimistic and there is too much talk of doomsday outcomes and apocalyptic forecasts. I think investors should start preparing for better times ahead. Stay alert and be ready to shift from macro, technicals, and other investment tools, and turn back to earnings revisions to help add alpha to your portfolio. Remember the old Wall Street saying, and it rings true no less now: When you should be buying, you probably won’t.  There’s a lot of fear out there. Clients and subscribers can click here for the full report. I’d like to point out in this note a few important factors: As we noted here last week, some key aggressive tactical indicators flashed buy last Friday, March 20, after positively inflecting from extreme negative readings…This historically suggests a high likelihood that a tactical trading bottom was in place that would tend to last only 1-4 weeks and fail. Our work suggests that it’s unlikely that all the selling pressure is over, and that volatility will begin to head back down to much lower levels. Nevertheless, the good news view is that the likelihood of significant lower lows for the S&P 500 has greatly diminished. Investors need to really be focusing on how they should be positioned for what we expect will be a significant improvement in equity performance for the remainder of the year.  In thinking about a future that is not apocalyptic, we are including a list of ten 2H20 potential surprises below. 2H20 Surprises The S&P 500 has seen its price bottom and UST 10-yr yields have also seen their lows. Peak COVID-19 cases will be reached and widespread lockdowns will be done before May starts. A short-term medical solution comes into focus over the next month while progress made on long-term vaccine is still in the works. 2Q20 GDP and corporate profits are both bad, a sequential annualized decline of 5-15% and a yr/yr contraction of 25-50%, respectively, but 2H20 sees the beginning of a V-shaped economic recovery that leads to 4Q20 profits posting positive yr/yr growth. The S&P 500 reaches an all-time high before the year ends. Yes, that’s what I said. The equity market rally is led by offense, a mix of cyclicals, financials, and secular growth… …While the laggards are traditional defense areas including Utilities, Real Estate, and legacy Telcos. 10-yr yields move back over 1% and head towards pre-crisis range of 1.5-2.0%. The U.S. greenback, on a DXY basis, falls below 100 and settles in a range of 96-99. And before 2020 ends, early rumblings about rising inflation expectations during 2021 and chatter about when the Fed will start to take back their emergency policy responses. Bonus Surprise For those of you who have read all the way to the end and are wondering about a potential second COVID-19 wave that may come and the likelihood of an L or U-shaped recovery, our working assumption is that a medical solution becomes available that preempts it before it begins. Indeed, under this scenario, the impact would likely be small or nonexistent relative to what’s going on during the current wave. Consequently, the comparison with the 1918 Spanish Flu second wave is less likely to occur in my view and that the bearish implications will not play out. Conclusions Despite continued volatility in equity markets and the absence of a medium-term buy signal from our key directional indicators, we are retaining our medium-term bullish view and will view any future weakness as possibly that last opportunity for investors. Our research and view of the macro landscape continues to suggest that investors overly positioning towards defense will ultimately miss a powerful reversal that will prove challenging to forecast in advance. Therefore, we reiterate our offensive positioning with a six- 12 months outlook. Critically, we continue to strongly advise investors to keep looking for attractive entry points to add exposures into the areas we like instead of trying to pinpoint THE bottom.    From an aggressive tactical perspective, our key short-term indicators flashed a buy signal on 3/20 from some of the worst readings we have in our database, which suggested a tactical bounce was likely to begin. However, our medium-term work is still falling, which strongly suggests that the current rally is likely countertrend and will ultimately fail after 1-4 weeks.  Importantly, this leads to the final process and setting up THE bottom.

COVID-19 UPDATE: For the past 4 days, 7D delta in daily cases negative, affirming Wave 3 rolling over, for now...We should not view 2020 pre-pandemic highs as the ceiling for Epicenter stocks.

Click HERE to access the FSInsight COVID-19 Daily Chartbook. STRATEGY: Strong year likely to see a strong finish... We are now in the final month of 2020 and the first 11 months are best characterized, in my view, as vastly outperforming expectations.  Despite a global pandemic and economic depression, equities have been surprisingly resilient.- We don't see how stocks suddenly weaken in this final month.- Granted, the risk is that this is a consensus view, but we are in a seasonally strong period for equities- Hence, we see the S&P 500 ending the year at 3,800, or roughly 4.5% upside from current levels. Don't view 2020 highs as the absolute max for Epicenter stocks, since their P/E can expand substantially... We think most investors are skeptical of the rally in Epicenter stocks.  In fact, we have noted many pointing to the fact that many of these are within 20% of the 2020 pre-COVID highs as a reason to avoid them.  But this exposes a flaw in the framework.  - Why should 2020 pre-COVID highs be the high for epicenter stocks?- Given the future operating leverage, their earnings power is substantially stronger- Equity risk premia should fall = higher P/E- Epicenter stocks have been underperforming and de-rating for 15 years, so why is 2020 pre-COVID multiples the peak?- Growth stocks are 30%-50% above the pre-COVID-19 highsThus, we view epicenter stocks as a good risk/reward currently.  Their market capitalizations have fallen to ~27% of the S&P 500 and this group collectively, has substantial operating leverage Bigger question... is this the turn? Like the 10-year turn? The surge in epicenter stocks (aka Cyclicals aka Value) in the past few weeks has caused a noticeable inflection in the MSCI Growth vs Value charts (see below).  The two lines represent Growth (red) and Value (blue) relative to MSCI ACWI.  And as you can see, the red line is posting a pretty sharp reversal in the past month.- the natural question is whether this is similar to the inflection seen in 1999- at the time, that inflection led to a 10-year surge in Value stocks, outperforming Growth by ~8,000bp in that period of time Part of the answer ultimately depends on the trajectory of interest rates.  If you are in the camp that we are facing higher rates in the future, then this is indeed the inflection for Value. This chart below shows nearly 100 years of relative performance.- when rates are rising, Value leads- when rates are falling, Growth leadsSo future rates are a key question. As for COVID-19 trends, it has been quite positive over the past 4-5 days.  As shown below, the 7D delta in daily cases has turned negative.  That is, Wave 3 is meaningfully rolling over.  In fact, this is also seen in the 6 states at the heart of Wave 3, WI, IL, ID, ND, SD, UT, or WIINSU. But we have to keep in mind, the data for the week of Thanksgiving is giving us an artificially better than expected view of COVID-19 trends.  The reasons are two-fold:- first, testing activity fell due to the holiday weekend (closures, etc.)- second, the social gatherings over Thanksgiving likely will contribute to a renewed spread in casesBut a win is still a win.  So the drop in cases is a good thing, to the extent the baseline is lower. Source: COVID-19 Tracking and Fundstrat   ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter:Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click hereADDENDUM II : Did you miss our Webinar on Nov 19? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click herePOINT 1: Wave 3 rolling over.  Daily cases 133,038, -15,716 vs 7D agoThe latest COVID-19 daily cases came in at 133,038, down -15,716 vs 7D ago.- Over the past 4 days, daily cases were lower vs 7D ago, in each of the past 4 days- It looks like Wave 3 is definitely rolling over- But as discussed in point #2, tests have fallen, so this is impacting case figures Source: COVID-19 Tracking Project  and Fundstrat7D delta at -15,716 and cases are declining in each of the past 4 days (vs 7D ago)Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average. Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat              Source: COVID-19 Tracking and FundstratPOINT 2: Daily cases rolling over, but partly attributable to the holiday-week drop in testsThe data for the week of Thanksgiving is giving us an artificially better than expected view of COVID-19 trends.  The reasons are two-fold:- first, testing activity fell due to the holiday weekend (closures, etc.)- second, the social gatherings over Thanksgiving likely will contribute to a renewed spread in casesBut a win is still a win.  So the drop in cases is a good thing, to the extent the baseline is lower. Daily tests jumped around, but notice the 7D moving average is declining... The zoomed chart on the right shows daily tests jumped around quite a bit over the past few days.  But the 7D moving average highlights the extent of reduced testing.   - the 7D moving average fell to 1.4 million from ~1.6 million a week ago- thus, one could view the decline in daily cases are mostly a result of a drop in testing Source: COVID-19 Tracking and Fundstrat In fact, the positivity rate has been basically flat at 11.4% for the past week.  11.4% is not a great figure, and above the 10% level the WHO views as indications of an infection is under control.  But the fact is not continuing to surge is a good thing. Source: COVID-19 Tracking and Fundstrat Looking at this by tiers of states, we can see the highest positivity rates are those states engulfed in Wave 3 (red line).  I guess the good news is the positivity rate is declining for Wave 3 states. Source: COVID-19 Tracking and Fundstrat And if we look at daily cases per 1mm, we can see the broad decline in cases across all the cohorts of states.  For instance:- Wave 2 states, or FL, CA, AZ, TX are seeing cases rollover- even Wave 3 states this rolling over- interestingly, we continue to see daily cases rise in Wave 1 states and now surpass Wave 2 Source: COVID-19 Tracking and Fundstrat POINT 3: Another study again shows T-cell + immune memory post-COVID immunity could last yearsA recent study was published on BioRxiv that again supports the idea that post-infection, T-cell immunity plus other immune memory to COVID-19 could last years.  This is very good news and is substantially longer immunity than generally perceived.  Even as recently as a few weeks ago, US healthcare experts warned that COVID-19 immunity might only last months and thus, we could see continued cycles of infection.- if this study's conclusion is indeed correct, the chances for the US to reach herd immunity is substantially greater- that is, people are unlikely to get COVID-19 twice. - Sure, there seem to be some documented cases, but this is the exception, not the rule Source: NY TimesThe actual BioRxiv link is below.  The study itself was first published a few weeks ago, but it seems like it took some time before there was sufficient media attention to put it on people's radar screens. /content/10.1101/2020.11.15.383323v1The study was based upon 185 individuals.  I don't know if that is considered a large cohort, but it is a fraction of the millions infected. /content/10.1101/2020.11.15.383323v1

COVID-19 UPDATE: Adding 14 names to 'Epicenter Trifecta' list (+8 Energy stocks). Markets have a lot to be thankful for in 2020.

Click HERE to access the FSInsight COVID-19 Daily Chartbook. HOLIDAY WEEK: Due to the Thanksgiving holiday, we are only publishing our COVID-19 BLAST updates on the following days:- Monday am- Tuesday am- Wed amNo More reports including no Weekly Roadmap- Thursday and Friday --> Thanksgiving STRATEGY: Thanksgiving a reminder that 2020 is a year of many black swansThis is our last update this week, during the shortened Thanksgiving holiday week.  And I want to start this by thanking all of our clients for your support in 2020.  Without your support, our firm would not exist and so on behalf of all of us at Fundstrat, thank you for letting us keep the lights on. Wave 3 seems to be definitively rolling over.  Below is the 7D change in daily COVID-19 cases, ex-CA, and as you can see, we saw a decline.  This is a meaningful turn, and the 6 states are the heart of Wave 3 (see Point #2) seem to be rolling over.  But we also caution this could all be temporary, since the holiday season involves new family gatherings, and thus, Wave 3 could be re-invigorated. Source: COVID-19 Tracking and Fundstrat  The last 3 weeks have seen a lot of meaningful progress on COVID-19 vaccines.  And the CDC Director Redfield even commented US citizens could be receiving the first doses in mid-Dec (see Point #3).  So markets are appropriately lauding the approval of 3 vaccines.  And as the Bloomberg article below highlights, future vaccines should be even more effective.  The article discusses inhaled vaccines under development:- these should be local (lungs, respiratory) vs systematic, and also act similarly- can be stored at lower temperatures- do not require needles (big plus) Source: Bloomberg /news/articles/2020-10-11/covid-19-inhaled-vaccines-may-be-more-effective-than-injections? sref=NVS0rEaE46 million turkeys will perish as part of the US Thanksgiving holiday.  And this fact makes me think of an illustration from the book, the Black Swan, written by Nassim Taleb. Nassim Taleb, mathematician extraordinaire, and author of the book The Black Swan (which became very widely read during the GFC) has a great illustration of a Black Swan event -- the life of a turkey.  In the 1001 days in a life of turkey chart, you can see the wellness of a turkey.- it rises steadily until the Wednesday before Thanksgiving- then, down to zero Source: Nassim TalebAt least 4 Black Swans in 2020 But his illustration of the turkey actually bears relevance in 2020 as well.  Looking at 2020 so far, it is a year of Black Swan (completely unexpected) events:- Global pandemic killing >1 million people- First ever shutdown of the global economy- Greatest ever economic contraction in the US- Fed completely abandons its playbookThese are completely unexpected events.  And as Taleb comments below, is akin to the life of a turkey. Source: Business Insider quoting Nassim TalebThe greatest market blessing in 2020 is we now realize US corporates are unkillable = P/E going to rise...I am thankful for many market events in 2020, but the most notable is that we learned US corporates, both large and small, are unkillable.  The US experienced:- worst ever economic contraction- near virtual lockdown of economy- largest surge in unemployment- near fatal crash in financial marketsYet, US companies managed liquidity, cut costs, found ways to reach customers and generally did not collapse.  This is absolutely incredible.  Seismic ripple is structurally lower equity risk premia = higher P/EAnd I think the seismic ripple, going forward, is going to be a drop in the equity risk premia, at least for the next 4-5 years.  In other words, we think P/E is going to step up dramatically.  Why?- Equity is arguably inherently less risky, if companies can survive the 2020 apocalypse- Corporate credit trades at 50X P/implied E while stocks are 18X, this should meet in the middle- Millennial investors made a fortune in stocks in 2020, during a Great Depression and their enthusiasm should not abate- Millennials will inherit $68T over next 20 year = richest ever generationSo there could a huge runway for stocks -- it doesn't mean 2021 is going to be lights out good.  But I certainly think this argues we finish 2020 very very strongly.  Hence, we see S&P 500 reaching 3,800 by year-end.  This is ~7% upside which is reasonably considering this seasonally strong period. But the VIX is also key to a YE rally, to an extent.  We believe VIX<20 would be a strong risk-on signal, as this level of VIX was only seen pre-pandemic.  The VIX measures the market's anticipated future volatility.  Hence, lower VIX means investors see lower future volatility = higher leverage.  Thus, falling VIX = more capital flowing into equities.- Hopefully, we get a VIX <20 soon, and as such, is fuel for YE rally Source: BloombergUpdated Epicenter Trifecta list -- adding 14 stocks.  +8 Energy stocksWe have updated our Trifecta Epicenter stock list.  These are the stocks which were hit the hardest by the pandemic and have the greatest operating leverage to a re-opening.  And we like the earnings upside in these stocks, because of the massive cost reset.  The stocks are based on positive views coming from the trifecta of: (i) Quant (tireless Ken), (ii) Global Portfolio Strategy (Brian Rauscher, aka Rocky) and (iii) Technicals (Rob Sluymer).  14 Additions to the Epicenter Trifecta Stock List:- Consumer Discretionary: HAS, PII- Financials: MTG- Industrials: JBHT- Energy: HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX- Basic Materials: SON- Real Estate: VNO Source: Fundstrat ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter:Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click here ADDENDUM II : Did you miss our Webinar last week? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click herePOINT 1: Wave 3 rolling over and ex-CA, cases declining.  Daily cases 162,465 +5,987 vs 7D agoThe latest COVID-19 daily cases came in at 162,465, up +5,987 vs 7D ago.- 7D delta is lowest in 40 days- ex-CA, 7D delta is actually negative- 6 states at the heart of Wave 3 are seeing cases rollover (Point #2)- so for now, Wave 3 seems to be rolling over Source: COVID-19 Tracking Project  and Fundstrat7D delta at +5,987 is the lowest in nearly 40 days... ex-CA, daily cases are NEGATIVE vs 7D ago... Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.- Daily cases are rising vs 7D ago,- It had been rising at >40,000 7D delta- the pace slowed considerably mid-October Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and FundstratPOINT 2: Wave 3 --> WIINSU daily cases looks to be rolling over = goodWave 3 for COVID-19 is widespread, so it is not as geographically isolated as Wave 1 and 2 (see below).  But the epicenter of Wave 3, measured as case prevalence (daily cases per 1mm) is 6 states --> WI, IL, ID, ND, SD, UT, or WIINSU  And as shown below, the case velocity in these areas dwarfed what was seen in Wave 1 and Wave 2.- even as cases pick up on Wave 1 (NY tristate) and Wave 2 (F-CAT) areas, the velocity is far lower Source: COVID-19 Tracking and Fundstrat But looking at the county-level data in WIINSU, we can see the first signs of Wave 3 peaking.  This is highlighted the 3 largest counties in each state.  This seems to be the case in:- ND definitively peaked- SD definitively peaked- WI maybe- UT maybeSo there are signs of peak in COVID velocity.  Part of this stems from policymaker panic (soft lockdowns) and citizen panic (mask usage) and a part of this could be COVID-19 reaching the infection break point.  The latter is interesting, but with therapeutics and vaccines, natural herd immunity is arguably less pertinent. Source: Johns HopkinsBut looking at cases per 1mm residents (per capita) can be misleading in the sense that the aggregate number of cases tells a slightly different story.  As shown below, if we look at state's absolute daily cases, dominating this are Wave 2 states (Wave 2a now?) CA and TX. Source: COVID-19 Tracking and Fundstrat POINT 3: Nursing homes could receive vaccines in December... WOW!!! Robert Redfield, CDC Director, was interviewed on Fox News and said a Coronavirus vaccine might be distributed across the US as soon as mid-December.  This is a big milestone, if correct. I realize many of you might view the CDC with a jaded eye, given their secondary role in this crisis.- But if Redfield is correct, this is a big deal- the most vulnerable are the elderly Source:  as reported by NY Magazine, which is quoting the Fox News interview, talked about distributing the vaccine in a hierarchical way.  It seems he wants to give it to:- nursing home residents- healthcare providers- individuals at high riskIf I was to add to this hierarchy, I think it should include:- first responders- essential workers, particularly at grocery stores Source: 

COVID-19 UPDATE: Third time is the charm --> stocks finally react properly to vaccine news. Yellen pick for Treasury Secretary = market friendly

Click HERE to access the FSInsight COVID-19 Daily Chartbook. HOLIDAY WEEK: Due to the Thanksgiving holiday, we are only publishing our COVID-19 BLAST updates on the following days:- Monday am- Tuesday am- Wed amNo more reports- Thursday and Friday --> Thanksgiving STRATEGY: Violence of action in epicenter demonstrates investors underweightIt looks like Wave 3 is rolling over.  The 7D delta is lower on Monday compared to the past few weeks and would have been lower except for distortions from WA and OH (see Point #1).  But with the holiday season and family gatherings, this rolling over of Wave 3 might be temporary.  Keep in mind, CA is micro-Wave 3 -- the surge in that state is due to areas seeing COVID-19 that were spared in Wave 2. Source: COVID-19 Tracking and Fundstrat  Third time is the charm -- stocks finally react to vaccine news... The arrival of holiday season (Monday before Thanksgiving to YE) heralded solid gains in equities, as the AstraZeneca COVID-19 vaccine news plus the Regeneron antibody approval, was a double-whammy that reversed the growing skepticism.  After the close, media reports confirmed that a potential Biden administration plans to select Janet Yellen as Treasury Secretary.  No doubt, we expect markets to be happy with this choice -- in my view, Mnuchin has done a great job in this role (by the way). Janet was well regarded in her role as Fed chair and I admired many of her decisions during her tenure.  I was Chief Equity Strategist at JPMorgan at that time.  And as many are aware, Janet had a short tenure as Fed Chair, and was replaced by Powell.  The media reported that then incoming administration found her too diminutive and thus, was replaced by Powell, who is considerably taller (~5' vs ~6') Source: LPLI had a chance to meet Janet Yellen in 2019, at a charity event (thanks Barry Haimes).  And this photo is a treasured item in my celebrity sightings album.  But as you can see, Ms. Yellen is a giant in stature.  She clearly towers over her peers and myself as well Source: Tom LeeMany investors are still reluctant to stay risk-on... Despite the widespread view that investors have become overly ebullient, we have not found this in our conversations.  In fact, we heard from a few larger investors that they were getting ready to fade stocks again given how equities seem to have made little progress despite great headlines and they saw downside risk in stocks due to:- Treasury/Fed pulled away the training wheels (last week, termination of the facility) and- Was all the good news priced in as S&P 500 has not made gains despite great vaccine headlinesBut as we commented last week, the past few weeks looked like a market consolidating its gains -- a pause that refreshes, as evidenced by the 4hr RSI getting oversold (see below).  And this week, that consolidation seems to be ending.  Plus as noted yesterday, over the last 25 years, the S&P 500 has risen 89% of the time from Monday (pre-Thanksgiving) to YE. Source: BloombergEpicenter stocks continue to rise, even as S&P 500 has been flat for the past few weeks... But over the past 3 days, even as the S&P 500 has been flat, there has been a dramatic outperformance by cyclical stocks, or as we refer to them, epicenter stocks.  The top 15 best performance sub-industries (of S&P 500) are shown below, based upon 3D performance:- Energy stocks have dominated the top 15, 5 of the top 5- everything else is cyclical- stating the obvious --> while S&P 500 has been flat, massive move in epicenter stocks Source: FundstratWe had suggested that the eventual rotation into epicenter stocks would be violent (harkening General Mattis comment about violence of action, see our past commentaries).  And the factors for triggering a violent move are:- Epicenter stocks are most positively impacted by vaccine --> binary event- Epicenter stocks are most negatively impacted by COVID-19 spread --> somewhat binary- Epicenter stocks are only 25% of S&P 500 markets cap vs 75% for Growth/Defensives --> mismatch- Epicenter stocks are most positively geared to re-opening --> 2021 is turning point- Epicenter stocks have strongest operating leverage, due to massive cost cutting --> Big EPS surprise in 2021Most importantly...- Epicenter stocks are UNDER-OWNED --> Epicenter was the pariah for much of 2020, for understandable reasons Source: HBOThe rally in Epicenter in past month is only baby steps --> 7,000bp of mean reversion... Given the reasons discussed above, you can see why any actual rotation into epicenter stocks would indeed be violent.  And over the past week, we had pointed out that many of our institutional investor clients saw the post-election epicenter rally as only short-lived and they planned to buy the Growth on the dip.- hence, dramatic moves as therapeutic visibility improvedAnd as the chart below highlights, the outperformance of FANG vs Epicenter in 2020 has been 7,000bp.  And if we used a mean reversion as a potential base case, this is 7,000 of outperformance of Epicenter in 2021:- in other words, if S&P 500 is up 10% in 2021- Epicenter could rise 80% ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)- Biden vs Trump  -->   based on correlation to either candidate odds Granny Shots:Full stock list here --> Click hereTickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX Trifecta Epicenter:Full stock list here --> Click hereTickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HIW, HLT, HOG, IBKR, IEX, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, NCLH, NEU, NNN, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PNFP, PNR, RCL, RS, SBNY, SBUX, SIX, SNA, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, WAB, WBS, WH, WTFC, WYND, XYL Biden White House vs. Trump White House:Full stock list here --> Click here ADDENDUM II : Did you miss our Webinar last week? We had the big guns, including David Zion, of Zion's ResearchWe had a great line up and discussed a lot of things between now and year-end.  Here are the replay links:- Replay --> Click herePOINT 1: Still looks like Wave 3 rolling over.  Daily cases 157,024 +9,848 vs 7D agoThe latest COVID-19 daily cases came in at 157,024, up +9,848 vs 7D ago. There were some distortions:- WA had a jump in cases as they did not report on Sunday, so Monday's data is 2-day's worth- OH had a huge jump due to backlog cases. but the state didn't specify how many are backlog casesSo yesterday was actually better than it appears Source: COVID-19 Tracking Project  and Fundstrat7D delta at 9,848 is one of the lowest in nearly 40 days... Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.- Daily cases are rising vs 7D ago,- It had been rising at >40,000 7D delta- the pace slowed considerably mid-October Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and Fundstrat   Source: COVID-19 Tracking and FundstratPOINT 2: Another sign Wave 3 peaking (for now), US counties declining cases rising... It is helpful to look at county-level data (vs state-level) to see the internal spread of COVID-19.  That is, gathering data at the county-level gives us an early look at trends.  And one of the charts we used in the past is below. This chart shows the % of the US (based upon county-level data) that are showing a decline in daily cases (vs 7D ago).  Thus, a rising figure is a good thing and when COVID-19 is surging, this line is falling:- We can see the peaks in Wave 1 and Wave 2, as this line inflected and began to rise- This line is suggesting Wave 3 might have peaked, as this line is now turning upwards Source: Johns HopkinsPOINT 3: Colleges less COVID-19 than USA... the risk is students catch COVID-19 at homeThere are several stories recently about the fear that college students will spread COVID-19 as they return home for Thanksgiving.  The most recent such article is from the Washington Post below. /local/education/thanksgiving-coronavirus-campus-university-wisconsin-madison/2020/11/20/9b2c68c0-2a07-11eb-92b7-6ef17b3fe3b4_story. htmlAnd the writer here frets that students will spread COVID-19 as they go home.   /local/education/thanksgiving-coronavirus-campus-university-wisconsin-madison/2020/11/20/9b2c68c0-2a07-11eb-92b7-6ef17b3fe3b4_story. htmlThese perspectives are wrong for two obvious reasons:- first, COVID-19 spread is far lower on campus than it is in the rest of the US- second, wave 3 means COVID-19 is spreading rapidly in communities, having nothing to do with studentsIn other words, the greater risk is that Thanksgiving and Winter break cause students to catch COVID-19 and bring it back to their campus.  The most obvious way to see this is by looking at the NY Times database, which reports cases by colleges.  And our data science team, led by tireless Ken, has compiled this by various tiers of states and compare it to case data in those states.- as shown below, the college share of COVID-19 daily cases is down to 3.2% nationally- this was 15% two months agoColleges are far safer than the surrounding cities Source: Fundstrat, New York Times

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